Milliman Analysis: Originations Drop Sharply, Default Risk Steady


Global consulting and actuarial firm Milliman Inc. has released the first quarter 2023 results of its Milliman Mortgage Default Index (MMDI), which shows its latest monthly estimate of the lifetime default risk of U.S.-backed mortgages.

Between the fourth quarter of 2022 and Q1 2023, default risk for government-sponsored enterprise (GSE) acquisitions (purchased and refinanced loans backed by Freddie Mac and Fannie Mae) ticked downward from 3.53% to 3.44%. This means that for mortgage loans originating in Q1 of this year, the expectation is that 3.44% will become delinquent (180 days or more) over their lifetimes.

Purchase mortgage originations for Q1 2023 were at their lowest levels since 2019; refinance originations were at their lowest levels since 2014, when Milliman started tracking this data. This is the fifth consecutive quarter that mortgage originations have decreased and represents a 73% decrease in mortgage origination volume year over year.

Looking at the components of default risk: Borrower risk remained steady in Q1 2023 while there was a slight decrease in overall economic risk between Q4 2022 and Q1 of this year. Underwriting risk remains low for purchase originations, though the increasing interest rate environment is having an impact on refinance originations.

“With interest rates increasing, only 30% of refinance loans were rate/term refinance for the most recent quarter. This compares to 40% in the year prior,” says Jonathan Glowacki, a principal at Milliman and co-author of the MMDI. “Because cash loans are assigned a greater default risk, they continue to drive up overall risk for refinance originations in Q1.”

Image by Freepik

Notify of
Inline Feedbacks
View all comments